Introduction to Concept of Equivalent Production
In the instances provided above, there was no stock of work in progress at the end of the specific period and though the question of valuation of similar does not take place. Though in practice it might occur that at the end of a specific period, there may be a number of incomplete units in the process. Additional the degree of finishing point of the opening work in progress and closing work in progress might be dissimilar. These incomplete units will generate problems in finding out the cost per unit, like all the units will not have similar degree of completion. In such type of cases, the equal units will have to be worked out for the incomplete units. The idea of equivalent units says that 2 units, each complete 50% will be treated like equivalent to 1 completed unit. This idea will have to be used for solving the problem of incomplete units. For this, degree of completion will must be ascertained for each element of cost that is labour, material, and overheads. The following techniques of pricing are employed for valuing the equivalent units.
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